Friday, February 13, 1998 Published at 21:13 GMTBusinessAccountancy merger offColin Sharman, International Chairman, KPMG, and Nick Land, Senior Partner, Ernst & Young when the merger was announced

Accountants Ernst & Young and KPMG have called off their controversial merger, nearly five months after they announced they were in talks.

The two firms blamed increasing difficulties with the regulatory process for their decision to call a halt to their plans.

They said the deal would have to be cleared by regulators in the US, Europe, Australia, Switzerland, Canada and Japan, incurring heavy costs and potential disruption to services.

There was also the possibility of different decisions being made in different countries, added the two firms.

If the merger had gone ahead, it would have created the world's largest
professional service firm with annual fees estimated at $18bn
(nearly £11m).

Because both are classed among the "Big Six" accountancy firms, the planned merger attracted criticism that it would lead to a reduction in competition and consumer choice.

KPMG international chairman Colin Sharman said he was disappointed, but had no doubt the firm would emerge "a stronger and more cohesive global business".

Ernst & Young UK senior partner Nick Land added he looked forward to the firm's continued growth and success in the UK and internationally.

Ernst & Young and KPMG are similar sized firms, each employing about 70,000 people in 135 countries.

The companies decided to join forces after rivals, Coopers & Lybrand and Price Waterhouse announced they were to merge. That deal is still going ahead.

A spokesman for Price Waterhouse said it was not surprised the rival deal had been called off.

"As we said at the time when they announced their plans, we always saw it as a spoiling tactic, hurriedly put together without any strategic rationale," he added.

"With regard to our own merger programme, that continues on track."

The collapse of the KMPG and Ernst & Young union leaves Price Waterhouse and Coopers & Lybrand in pole position to become the largest firm in the industry in the world - if they can clear the regulatory hurdles on both sides of the Atlantic.

Companies audited by KMPG include Pepsi, while arch rival Coca-Cola is a client of Ernst & Young.

Between them, they audit 40 of the companies in the FTSE 100 index of leading UK companies, including BP, British Airways, HSBC Holdings, NatWest Bank, Norwich Union and Rolls-Royce.

The other two firms classed in the Big Six are Andersen Worldwide and Deloitte Touche Tohmatsu.